Baker Kurrus: Opposes Little Rock School District tax

BAKER KURRUS: Says no to Little Rock School District tax vote on May 9.

Baker Kurrus has written a monumental essay explaining why he opposes the proposal in the May 9 special Little Rock School District election to continue an existing 12.4 mills of property tax for 14 years to support a new construction bond issue and continue the escalating hidden support the tax provides for operations ($26 million a year currently).

Kurrus speaks with authority. He's a Little Rock lawyer and businessman who long served on the Little Rock School Board and spent a year as its superintendent after the state takeover before being fired by Education Commissioner Johnny Key for his opposition to continued charter school expansion in the district.

Kurrus has circulated his essay, more than 4,000 words, to people who've asked him where he stands on the school election. The group that is pushing the tax increase had sought to enlist Kurrus' support, but I'd learned earlier he'd declined because of misgivings that grew to flower here. They include the cost of new debt and the "almost certain" loss of revenue from continuing declining enrollment, particularly to the charter schools that have already damaged the district. He believes the budget should be balanced and enrollment stabilized before the district floats another major bond issue. He says, too, that the southwest high school could be built without the bond issue envisioned in the election through budget controls and second lien bonds. He faults the state Board of Education, now in control of the district, for its failure to consider the enrollment and other figures he's compiled here.

His full essay follows. The opening summary:

I have never voted against a school tax in my life, but I will be voting against the debt service millage extension. This is a financial matter, and it needs to be analyzed in financial terms. Thus far there has been almost no financial analysis. Most of the proponents talk in general terms of providing new facilities for students, which is laudable and something we would all endorse. However, the matter needs to be assessed from a financial point of view. It would do no student any good if the bonds are issued and LRSD is so strapped financially that it cannot provide the educational services necessary for its students.

And, from his conclusion:

Although it is wonderful to have nice and new facilities, the problems of LRSD will not be solved by this borrowing. Millions of dollars have been spent on facilities without any major impacts, and academic performance in LRSD is not correlated to the age or condition of its facilities. Spending more money on facilities district-wide, while enrollment is declining, is a mistake. Any money spent on schools that are at the end of their economic lives is a waste.

LRSD spent hundreds of thousands of dollars at Franklin in the last several years, even though two much newer schools very close to Franklin had enough empty seats to accommodate all of the Franklin students. LRSD should not make that mistake ever again.

A plan for new facilities needs to be comprehensive, and should be based on a framework of new facilities. In summary, it would be imprudent to make such a large financial commitment without a comprehensive plan for educating the students in Pulaski County.

The State Board of Education actually agreed that such a plan was needed, and appointed a committee to work on the plan. The State Board then reneged on its commitment, and the excellent committee which was appointed to construct the plan has been unsupported. It would be a mistake to act without a plan.

We need comprehensive and clearly articulated policies which address these issues. The simple repetition of a mantra, “competition and choice,” is valueless.

In summary, the state has taken over LRSD, empowered “competition” by allowing magnet charters to take low cost students, increased LRSD’s percentages of poor, disabled and non-English speaking students, and Little Rock taxpayers pay all of the costs.

The full essay follows:

APRIL 29, 2017

Baker Kurrus statement with respect to Little Rock School District debt service millage extension

I have been asked by several groups to outline my position on the LRSD debt service millage extension. I offer the following summary of my views. Some additional and more general discussion follows.

SUMMARY. I have never voted against a school tax in my life, but I will be voting against the debt service millage extension. This is a financial matter, and it needs to be analyzed in financial terms. Thus far there has been almost no financial analysis. Most of the proponents talk in general terms of providing new facilities for students, which is laudable and something we would all endorse. However, the matter needs to be assessed from a financial point of view. It would do no student any good if the bonds are issued and LRSD is so strapped financially that it cannot provide the educational services necessary for its students.

A vote for the measure is a vote to borrow the principal sum of $160 million at a time when LRSD faces great uncertainty. The borrowing adds about $8 million per year to LRSD’s debt service through 2033, and then adds about $22 million through 2041. Six more payments of $3.8 million are due, with the proposed bonds being fully retired in 2047. The total cost of this borrowing is roughly $560 million, or an increase of more than $257 million over LRSD’s current debt service obligations. After this borrowing, LRSD would owe about $346 million in bonded debt. The additional cost of this debt, by itself, is very dangerous because LRSD has no operating cushion.

Equally problematic is the almost certain loss of revenue LRSD will experience due to declining enrollment. Pulaski County now has over 9,300 charter school seats. eSTEM and LISA were expanded by the State Board of Education in March 31, 2016. As these three new schools come on line, LRSD will lose about 1,250 students to these schools alone. The revenue impact will be a loss of over $8 million. The increased costs of the borrowing, combined with the revenue losses due to declining enrollment, put the future of LRSD at great risk. Nothing I have seen with respect to this proposal has discussed these realities. LRSD needs to do some detailed projections which take the enrollment losses into account.

Rather than borrow now, the better approach would be to make a realistic assessment of the size and character of LRSD over the course of the same thirty years of the proposed bond repayment. LRSD can borrow, if necessary, after the budget is balanced and enrollment is stabilized. In the shorter term, the same revenues which would be spent on annual interest and fees could be spent on facilities on a pay as you go basis. This amount, plus the capital money LRSD already has or will receive, should be enough to build the southwest Little Rock high school. Any shortage could be covered with second lien bonds. At the present time there is much uncertainty, and taking on a long-term obligation without a repayment plan would be imprudent. LRSD does have some serious facilities needs, but new school buildings have not, and will not, solve LRSD’s problems. Moreover, it is also simply not possible to address facilities needs in an intelligent manner until there is some type of comprehensive plan to provide public education in Pulaski County.

Before LRSD takes on an enormous financial obligation, the State Board of Education, the Commissioner of Education, and the stakeholders/taxpayers need to develop a comprehensive and detailed long term plan for educating our children. The commissioner supported the preparation of such a plan in late March of 2016. He then appointed a committee to prepare the plan. The committee has been meeting but its plan has not been published. Therefore it is impossible to know if this millage extension is in line with the committee’s ideas.

There are now 21 charter schools serving students who live within the boundaries of the LRSD. If past practices are indicative of future actions, most of the students who are taken from LRSD will be high achievers. The percentage of LRSD students who have special needs, who do not speak English as their first language, and who are in poverty will continue to increase dramatically. The reality is that charter schools are expanding, with more applications to be filed. This reality has not been discussed.

The bond payments will be a priority. Whatever is left will be used to run the district. The educational program and the employees of the district would bear all of the cuts necessary to allow for the higher bond payments. This is not a prudent plan, or actually a plan of any kind. I have not seen any detailed financial analysis of this transaction which includes the impacts on LRSD’s operating budget. The bonds will be repaid, because the dedicated debt service mills are in place. However, the excess debt service funds have been used for years for operations. These funds will no longer be available for operations. The additional loss of funds due to enrollment declines has not been mentioned by the proponents of the extension. Both must be considered.

Without a realistic enrollment projection, a pro forma operating budget in the out years, and the comprehensive plan for educating all students that the Commissioner said was necessary, there is no way to make a fully informed decision about this matter. The arguments for the extension become very general and vague. It would be imprudent to saddle the district with hundreds of millions of debt service obligations until there is a real community-endorsed plan backed by solid projections. This is a financial matter. The southwest LR high school can still be built, even if second lien bonds are required to finish it. The key is to adjust the operating budget as necessary to free up the capital funds which are generated by the debt service millage.

Without any plan for the long term, borrowing long term is a mistake, especially without some projections that show the impacts on LRSD’s operating budget. I am fully supportive of LRSD, but I do not have reason to believe this extension is in LRSD’s best interests. I will vote no on May 9, 2017.

ADDITIONAL ANALYSIS

When analyzing a financial proposition, it makes sense to look at the numbers. So far I have seen nothing about the substance of this millage extension. I have gotten several slick pieces of mail which say this is “for the children,” but we need to be more discerning and careful when obligating LRSD for hundreds of millions of dollars.

LRSD will be losing over $37 million in state aid and another $10,000,000 to $12,000,000 annually due to enrollment losses to the LISA and eStem charter magnet school expansions which have already been approved. Additional charter applications are being filed. Although the state has not issued a plan, the state has charted a course and taken action. On average, the state has authorized about 700 charter seats per year in Pulaski County since 2004. There is no reason to believe that this trend will change. Almost all charter applications are approved, and even poor performing charter schools are allowed to continue in operations. These are the simple facts, but none of this has been discussed in public. The charter proponents who are pushing this millage extension have not indicated that they will be backing off their push for more charter schools and charter school districts in Pulaski County.

Most recently, on March 31, 2016, the State Board of Education authorized and directed the construction of three new charter schools within the boundaries of LRSD. The facilities costs were not disclosed because the facilities are owned by third parties, but the annual rents for these facilities are about $2.5 million public dollars, presumably in perpetuity. These new schools have major impacts in LRSD, both from an enrollment and a financial point of view. The state authorized the construction of a new high school in southwest Little Rock when it approved eStem’s plans. eStem and LISA’s new charter magnet schools will be funded with local dollars which come directly out of LRSD and the other local districts, as I explain later. In the past, these schools have not served a proportionate share of the needier students in the area. They have not competed on an equal basis, but have enrolled students who are already succeeding in the public environment. About eighty percent of the students LISA and eSTEM took from LRSD were succeeding under state classifications. Not only are LRSD’s revenues declining, its academic work is being made more challenging. These challenges cannot be met without adequate funding. The millage extension increases LRSD’s interest costs, and thereby reduces LRSD’s operating revenue. None of this has been discussed or analyzed in public.

LRSD’s proposed borrowing will almost surely constrain the LRSD in the future. The district’s ability to retain key employees, make programmatic changes, and serve its remaining students could be compromised. After this vote, if successful, the ability to raise the current millage to the levels in place in NLR and Jacksonville (48.3 mills) would be doubtful. None of this has been discussed or analyzed in public.

My vote against the borrowing is not a referendum on state control, or a vote about the need for a larger high school in southwest Little Rock. We do need high schools in Little Rock that are larger than Fair and McClellan, and the students need to come from a cross-section of our community. When I left LRSD on June 30, 2016, I was working hard to build a southwest Little Rock high school, but that was only a part of the bigger picture. If LRSD is to succeed, the strategy must be comprehensive.

Another major point needs to be made. The State of Arkansas is constitutionally responsible for providing every Arkansas student with an equal and adequate education. The state’s actions in all of this will be measured against this standard. Local school boards are created by state statute, and local boards can be extinguished by the state. However, when the state exercises great power, it must recognize its fiduciary obligation to those it serves. With great power comes great responsibility. The State of Arkansas, through the State Board of Education, took control of LRSD in order to assist the district. Rather than assisting LRSD, the state has made the mission of LRSD much more difficult. The state has taken actions to favor charter magnet schools which enroll high achieving students. The state has made these policy decisions without any apparent regard to its fiduciary responsibility to LRSD and its remaining students. Poor, disabled, and non-English speaking students are being isolated in the name of competition and choice. The price to be paid in the future is immense. This may or may not be illegal or unconstitutional, but it is damaging to our community and LRSD. These facts are not in dispute. All were presented to the State Board of Education on March 31, 2016. You can review the facts in the LRSD submission which is found at the State Board’s website at www.arkansased.gov. (Go to the State Board tab, and click on Archived Minutes. Go to the meeting date of March 31, 2016, and click on the Agenda. The LRSD presentation starts on p. 259). Without regard to politics, the facts are undisputed, but they have not been discussed or analyzed in connection with this millage extension.

I actually think the charter authorizing statute and some charter schools could be valuable, but the statute is not being followed. The charter statute says that new charters should be given preference in high-poverty school districts. Obviously this preference would make no sense if the new charter schools take a disproportionate number of high-income students and thereby increase the poverty percentages in the home districts. That is the case with LISA and eStem. They actually increase the percentage of students in LRSD who receive a free or reduced-price lunch. That is not what the logic of the statute compels. Those schools are not enrolling their fair share of students with disabilities and students who speak English as a second language. The U of A’s Office of Educational Policy has also reached these same general conclusions. It did so with a flawed methodology which conflates all charter schools, but still reached the conclusion.

LISA, eStem and several other charters in Pulaski County are simply magnet schools, not unlike Williams, Parkview, Forest Heights Stem, Central and Gibbs. All have waiting lists. These new charters have replaced the true public magnet schools which existed under the federal court settlement which resulted from the long-running desegregation case. Magnet schools are not a bad thing, per se, but if overused they isolate students whose parents and guardians do not have the tools or initiative to enroll their students. Many courts, including the Eighth Circuit Court of Appeals, have approved magnet schools in limited circumstances in order to remedy a constitutional wrong. Magnet schools should never be used if they segregate and isolate students of need. The magnet schools in LRSD were restricted in this regard, and required for many years to meet certain desegregation goals.
This new “charter magnet” program being built by the state in Pulaski County has a large and very negative impact on central Arkansas, and the students who leave are not benefitted. The two largest charter magnets in LRSD, LISA and eStem, take high-achieving students from LRSD. About eighty percent of the students they took from LRSD from 2008 through 2016 were high-achieving. LRSD filed all of this information with the State Board of Education, and it is found on Exhibit D which was filed with the state in preparation for the March 31, 2016 hearings. None of this has been discussed in connection with this millage extension.

Exhibit D also shows that LISA and eStem take practically no students who speak English as a second language (13 students over an eight year period), and a small percentage of disabled students. For comparison, LRSD had 2,855 English language learners in 2015-2016. The U of A’s Office of Educational Policy reached these same conclusions, again without the differential analysis which is more enlightening.

If these trends continue, LRSD will be smaller and poorer, and have a higher percentage of students with special needs and a higher percentage of students who do not speak English. This needs to be discussed in the context of a long-term financial plan to meet these future needs. Thus far, there has been no mention of this with regard to this borrowing.
LISA, eStem, Quest, Covenant Keepers and the rest of the charters generally do not accelerate the learning growth for their students to the same degree as does LRSD. LRSD actually does a much better job educating the students who are in its schools than do most Arkansas school districts, when demographics, especially income, are considered. This information is in the report prepared by Dr. Denise Airola of the U of A. She presented the report at the State Board, and it was ignored.

The State should not control LRSD while also increasing its challenges. This puts the State Board and the commissioner in an irreconcilable conflict of interest.

Persons opposing this tax extension argue that LRSD taxpayers are paying all of the costs without having had any voice in the process. There is merit in this argument.

These issues relate very directly to the current question of the millage extension. The State Board of Education, with the commissioner’s support, authorized the construction of three new magnet charter school facilities within LRSD’s boundaries in March of 2016. This construction is being funded with local tax dollars which come directly from the local school districts. The expansions cost the state nothing. The three traditional central Arkansas school districts (LRSD, PCSSD and NLR) will lose well over $20,000,000 per year because of these expansions. Again, the state of Arkansas pays nothing, has nothing at risk and loses nothing, regardless of the outcome. The owners of the facilities, including some which are privately owned and others owned by entities pursuing political goals, generally receive healthy rents which are, in essence, backed by the credit of the state. The rents on eStem’s new facilities are over $2 million per year. These leases were granted without competitive bids or any sort of open process. All of this is bad policy generally, but in particular it hurts LRSD with respect to this millage consideration. These new facilities are being built with money that formerly went to LRSD and other local districts. Whether that is good or bad, it certainly has a negative impact on LRSD.

The impact on LRSD of the additional cost of the proposed borrowing is enormous when combined with the loss of revenue. If LRSD ultimately loses about 2,000 students, it will lose over $13,000,000 every year. At the same time, LRSD’s fixed costs of operations go up by $8,000,000 by 2018. For the last eight years of the debt repayment, LRSD is saddled with over $22,000,000 in debt service which would be avoided if this millage extension is defeated. That total (8 times $22,000,000) would equal the same amount of money which is being generated by this borrowing.

Under Arkansas’s funding formula, all of the costs of charter schools are shifted to the local school districts’ tax bases. The state’s support of LRSD goes down by at least $6,646 per student when a student leaves. The calculation is made pursuant to Amendment 74 and the enabling statutes which followed the amendment. The amendment requires every local school district to tax at a uniform rate of taxation (“URT”) of 25 mills. The difference between the amount of the local per student revenue generated by the URT and the foundation funding amount established under the Lakeview case, $6,646 per student in 2016-2017, is made up by the state. When a student leaves, the local revenue generated by the URT does not go down but is apportioned to the remaining students, thereby reducing the state’s per pupil contribution for each of the students remaining in LRSD. The following illustration is perhaps easier to understand. I have assumed a school district has 22,000 regular students, and then loses 2,000 students. I have also assumed that the local tax base generates $3,817 per pupil before the enrollment loss. (I have a eliminated the categorical funding effects for purposes of this illustration.)

In summary, the state pays nothing when charters are expanded. The local tax base picks up the costs, without a vote, and without any way of impacting the outcomes which result. In the case of LRSD, the state put LRSD in a very difficult financial position of having to deal with a huge revenue loss and a loss of high-performing students. LRSD already had a number of under-enrolled facilities which are now even less necessary. All of this is made worse because LRSD is under state control and the community is divided.

In summary, the state has taken over LRSD, empowered “competition” by allowing magnet charters to take low cost students, increased LRSD’s percentages of poor, disabled and non-English speaking students, and Little Rock taxpayers pay all of the costs. The state refuses to offer any policy guidance. After authorizing a planning group to study the educational needs of our community, but before the group’s report is published, the state is pushing a huge tax extension with far-reaching impacts which have not been analyzed.

When LISA expanded in west Little Rock in 2016, it enrolled a number of gifted and talented students from Terry Elementary. The information is readily available. LISA, the state and LRSD know the students who left, and know the academic credentials of the students who left. This information is critical to the current analysis, and the information should be made public (obviously without any identifying student information) because it is relevant to the current issue. Terry is an award-winning school which was visited by the governor and commissioner of education in 2016. The parents who moved their students did so voluntarily, but the state has no constitutional obligation to a parent to provide school choice, and it makes no sense at all when the constitutional standard is so clearly being met by the local school district. The State Board of Education did not consider these matters, and that was a severe dereliction. It is especially ironic that the State Board approved plans to remove high achievers from LRSD while asking LRSD to improve student average performance. Choice, by itself, would be fine, but not if it segregates and groups students, thereby collapsing the traditional public system as a whole. That is not competition, but segregation, and it is wrong even when it is not based on race.

The net result is that LRSD, PCCSD and North Little Rock School District have smaller but much more challenging student bodies, with greater percentages of students with disabilities and special needs. The State Board has given no indication of its future plans to grow charter magnets, or close the failing charters which enroll, to their great credit, some students of need. The State Board of Education has articulated no comprehensive financial plan to address these issues in the short term, and no plan whatsoever to address them in the long term.

Borrowing is not a strategy to solve spending issues.

Without a plan and a budget, the district is taking an inordinate risk by borrowing. LRSD needs a realistic budget which shows the revenue losses caused by increased charter enrollment. Right or wrong, these enrollment losses, with the resulting revenue losses, are coming. LRSD has not prepared for them.

CONCLUSION.

In early 2016 I firmly believed, with good reason, that LRSD could build the southwest Little Rock high school if it cut its administrative costs, closed schools that were substantially under-enrolled, and eliminated excess positions that were not absolutely necessary. I do not have the current numbers. The charter expansions, especially the construction of a competing high school at UALR, may have changed the situation. These details need to be made public. In any event, second lien bonds are available to finish the southwest Little Rock High School.

Regardless of how this vote turns out, LRSD’s non-financial challenges will not be altered. School buildings are not leading indicators of neighborhood health, but trailing indicators of neighborhood vitality. Constructing the new Stephens Elementary, the new Wakefield, the new Mann, the new Forest Heights, and the new Roberts had minimal impacts on those neighborhoods. Schools are barometers of community health, and they are important, but new school buildings have not changed any neighborhoods in LRSD. Middle class expansion, fair housing and economic growth drive school performance. Addressing problems like homelessness and family failure would do more for school performance than any new buildings

Although it is wonderful to have nice and new facilities, the problems of LRSD will not be solved by this borrowing. Millions of dollars have been spent on facilities without any major impacts, and academic performance in LRSD is not correlated to the age or condition of its facilities. Spending more money on facilities district-wide, while enrollment is declining, is a mistake. Any money spent on schools that are at the end of their economic lives is a waste. LRSD spent hundreds of thousands of dollars at Franklin in the last several years, even though two much newer schools very close to Franklin had enough empty seats to accommodate all of the Franklin students. LRSD should not make that mistake ever again. A plan for new facilities needs to be comprehensive, and should be based on a framework of new facilities.

In summary, it would be imprudent to make such a large financial commitment without a comprehensive plan for educating the students in Pulaski County. The State Board of Education actually agreed that such a plan was needed, and appointed a committee to work on the plan. The State Board then reneged on its commitment, and the excellent committee which was appointed to construct the plan has been unsupported. It would be a mistake to act without a plan.

We need comprehensive and clearly articulated policies which address these issues. The simple repetition of a mantra, “competition and choice,” is valueless.

If LRSD can come forward with the financial information needed to analyze this matter, we could at least make a more informed choice. If not, the most prudent course now is to wait until we have a plan before we take actions that will place the district at great financial peril, and foreclose almost every other future possibility.